Morgan Stanley Warns: The Euro Stress Tests Could Still Flop, And The Euro Is Headed Back To Its Lows

The presumption is that the stress tests are guaranteed to be a success. No surprises.

Stephen Hull at Morgan Stanley is not convinced, not because any bank will fail, but because the stress tests themselves look like a joke:

We continue to believe that the correction in EUR/USD from 1.19 to 1.30 is probably complete and that the euro will revisit the year's lows in the second half of 2010. The results of the stress tests will be known tomorrow, and it seems likely to us that there is plenty of scope for disappointment, particularly with respect to their openness and whether they are stringent enough. With this in mind, it is interesting to observe that when a similar exercise was done in the US, bank stocks peaked in the near term on the announcement of the tests. Obviously, if the European banking system comes under more pressure in coming weeks, this is likely to hinder the euro. government bonds again.